Analysts' corner

Patel Engineering
Reco Price: Rs 412
Target Price: Rs 567 Patel Engineering results were in-line with expectation. However, revenues were below estimates at 9.2 per cent y-o-y growth, while profits were higher at 10 per cent. The company is witnessing traction in the core business with L1 (lowest bidder) position increase by Rs 1,600 crore during the quarter where overall L1 stands at Rs 3,120 crore.

The management indicated attaining FC for its thermal power project and booking of real estate revenue to start from H2 FY11, which will improve sentiments for its non-core initiatives. The risk being, lower than expected traction in AP project and deterioration in working capital and debt.

 

The stock is trading at a P/E of 12x. Meanwhile, valuation for others remains same with Real estate at Rs 55 per share, Land Bank at Rs 67, Power at Rs 36 and BOT at Rs 12. Maintain buy.

—Pinc Research

Aarvee Denims
Current price: Rs 67
Fair value: Rs 68 Aarvee Denims is the second largest manufacturer of denim fabric in India because of its continued focus on manufacturing and distributing denim fabric locally, while its peers cater to the export market as well. It has an extensive distributor base in the North; this region consumes around 60 per cent of denim fabrics produced in the country.

CRISIL Equities expects Aarvee Denims' revenues to grow to at a two-year CAGR of 13.8 per cent. CRISIL Equities expects adjusted EPS to increase to Rs 12.3 per share in FY12 from Rs 6 per share in FY10. Expect return on equity of 14.7 per cent in FY12 compared to 9 per cent in FY10.

—Crisil Equities

Reliance comm
Reco Price: Rs 163
Target Price: Rs 165

Reliance Communications (RCom) reported its Q1 FY11 revenue and profitability below estimates. Significant drop in minutes of uses led to higher drop in ARPU resulting in subdued mobile revenue. Though Ebitda margin came in higher than previous quarter at 31.9 per cent, profitability was adversely impacted due to interest expense and forex loss of Rs 440 crore during the quarter.

RCom reported marginal 1.5 per cent q-o-q revenue growth in the mobile segment.

Revenue from broadband services remained flat whereas global services exhibited 10.6 per cent q-o-q drop in revenue. Though, the sale of tower business to GTL Infra is expected to result in significant reduction in debt burden, it is also expected to result in higher operating expenses. Maintain sell.

—Ambit Capital

Cipla
Reco Price: Rs 314
Target Price: Rs 351

Cipla’s Q1 FY11 performance is below expectation. The lower single digit growth in domestic formulations is a major cause of worry for the company as it has led to an overall muted growth in Q1FY11. The brokerage believes that the higher base in technology income from royalty is another contributor of lacklustre performance and also faced challenges in the domestic generic segment.

The company’s higher base in the domestic market and upfront cost in new plants such as the Indore facility could impact near term cash flows. However, Cipla is confident of regaining growth in the domestic market, and expects to boost exports of partner products to the US and EU markets. The stock trades at PE 21x and 18x of FY11 and FY12, respectively. Maintain accumulate.

—Elara Securities